Questions remain for US senators over tax law

Senators Carl Levin and John McCain had criticised Ireland over Apple tax rate

Senator John McCain. In a joint statement with senator Carl Levin, he said: “Ireland’s promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging.”

Two US senators who criticised Ireland’s laws for allowing American multinationals avoid tax have said important questions remain about how the Government plans to close a loophole.

Democrat Carl Levin and Republican John McCain said they hoped a pledge by Minister for Finance Michael Noonan to tackle the use of “stateless” Irish companies by US multinationals to lower their taxes would show that Ireland is “ready to close the door on these egregious corporate tax abuses”.

The Government announced plans in Tuesday’s budget to introduce a change that will mean Irish-registered companies must be tax resident in some jurisdiction.

Encouraging promiseApple was criticised by the two senators at a Congressional hearing in May for using Irish companies, which were not tax resident anywhere, to pay less than 2 per cent tax on $44 billion of non-US income over four years.

“Ireland’s promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging,” the senators said in a joint statement.

“Important questions do remain, however, including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income from the 12 per cent Irish tax rate, calculating taxable income in ways that produce a lower effective tax rate, or simply declaring tax residency with no corporate tax.”

During his budget speech Mr Noonan said it was important that Ireland protected its reputation. “Ireland wants to be part of the solution to this global tax challenge, not part of the problem,” he said.

Correct approachYesterday he said he believed a low corporate tax regime, based on statutes which Ireland has always had, was the correct approach for Ireland.

“But we recognise that there has been aggressive tax planning which plays one tax regime off against another. That is something that through the OECD and the EU there are moves now to deal with. Most of the closing of that [the loopholes] will have to be through international co-operation.”

The American Chamber of Commerce Ireland said the changes should not affect Ireland’s competitiveness for foreign direct investment. The chamber’s chairwoman, Anna Scally, said the release of a document outlining Ireland’s international tax strategy would be “welcomed by potential and current investors”.